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Thursday, February 21, 2013

Bloopers at Blyth

Herbalife (HLF) has been under the microscope lately as large money managers have taken turns offering their opinions (backed by capital) of where the stock is going. But all multi-level marketing (MLM) firms have been affected, as if you buy into the short thesis of Herbalife, it's not a stretch to envision the same circumstances taking down a company like Blyth (BTH), which sells a similar product (Visalus, for weight loss) in a similar way (MLM) to the same market.

But while Herbalife got a boost from all the longs that jumped in after its price fell, shares of Blyth aren't far from their 52-week lows, despite the market run-up. Shares have been pushed down by short-sellers; in fact, Blyth leads the market in terms of short-interest, with short-interest representing a whopping 63% of its float! But this is a profitable, 35 year-old company that trades at a P/E under 7!

Complicating the valuation of Blyth, however, is that it's a company in transition. Sales of its traditional line of products (candles, home fragrance, home decor etc) are dropping fast. At the same time, however, sales of its new product, Visalus, are through the roof. Determining whether Visalus can maintain its market is key to determining Blyth's value. For an excellent breakdown of these and other issues relevant to Blyth's valuation, see this article.

I'll leave the moral arguments to others. The beauty of this country is that it's relatively free, allowing individuals to make their own decisions about whether to buy liquor, tobacco, pornography or whatever it is Visalus sells (placebos? a difficult to attain lifestyle?) and the shares of companies that sell such products.